Complementary Assets, Start-Ups and Incentives to Innovate

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Abstract

We examine to what extent market conditions facilitating start-up formation affect firms' R&D investment and profits. We consider a model in which R&D efforts of an incumbent firm generate partly tacit technological know-how embodied in a key R&D employee, who might use it to form a start-up. The availability of complementary assets influences whether new firms are created and determine expected profits for start-up's founders. A large availability of complementary assets has the direct effect that the generation of start-ups is fostered. However, as a strategic effect, the incentives of incumbents to invest in R&D may be reduced because of the increased danger of knowledge loss occurring through start-up formation. We characterize the effects of an increase in the availability of complementary assets, showing that counter-intuitively there are cases in which it induces an increase in incumbents' R&D investment.
Original languageEnglish
Pages (from-to)177-190
Number of pages14
JournalInternational Journal of Industrial Organization
Volume44
Publication statusPublished - 2016

Keywords

  • Complementary Assets
  • R&D Effort
  • Start-Up Creation
  • Tacit Knowledge
  • Technological Change

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